European policy – Federal Council decides to launch consultations on the draft institutional agreement

Bern, 07.12.2018 - At its meeting on 7 December 2018, the Federal Council took note of the current outcome of the negotiations on the draft institutional agreement between Switzerland and the European Union. It also takes note of the fact that the EU considers the negotiations to have been concluded. The Federal Council considers the current outcome of the negotiations to be largely in Switzerland's interests and in line with the negotiating mandate. The Federal Council has however decided not to initial the institutional agreement for the time being, in particular in view of outstanding issues relating to the accompanying measures and the Citizens' Rights Directive. It will launch consultations on the draft agreement. The goal of these consultations will be to reach a consolidated position in order to seek further dialogue with the EU if necessary. The Federal Council will consider the status of these consultations in spring 2019.

In entering into an institutional agreement, the Federal Council aims to consolidate Switzerland's bilateral approach and, in particular, ensure continued and broader access to the internal market by concluding new EU market access agreements, for example covering the electricity sector.

The Federal Council considers the current outcome of the negotiations to be largely in Switzerland's interests and in line with the negotiating mandate. The Federal Council has however decided not to initial the agreement for the time being in view of outstanding issues relating to the accompanying measures, which have not yet been negotiated with the EU, and the Citizens' Rights Directive, on which no agreement has been reached with the EU. The agreement would provide greater legal certainty by creating a level playing field in the parts of the internal market to which Switzerland has access and achieve better predictability for Swiss companies and citizens in the internal market. The institutional agreement sets out four mechanisms for achieving these aims: ensuring consistent interpretation, development of the law, monitoring the implementation of agreements and dispute settlement.

ScopeThe institutional agreement solely governs the five existing market access agreements (free movement of persons, overland transport, civil aviation, technical barriers to trade (TBT) and agriculture) and future market access agreements, such as the electricity agreement currently being negotiated. It does not apply to the Agreement on Government Procurement or the 1972 Free Trade Agreement. The parties have agreed to issue a joint declaration, which is not legally binding, that they intend to initiate negotiations on updating these two agreements.

Dynamic, rather than automatic, adoptionThe dynamic adoption approach, as set out in the draft, allows agreements to be updated regularly in line with developments in areas of EU law to which they apply, thus avoiding any legal discrepancies that would create a barrier to trade and securing long-term access to the European market for Swiss companies. Switzerland may decide autonomously whether to incorporate any development in EU law into a market access agreement in line with its legislative procedures, including the option of holding a referendum. Automatic adoption of EU law has been explicitly ruled out. In addition, Switzerland will be systematically involved in shaping decisions relating to developments in EU law under agreements governed by the institutional agreement. Switzerland also has the option to present its concerns early on in the process.

The draft agreement also sets out certain exemptions from the dynamic adoption approach to EU law developments, such as a night-time and Sunday ban on heavy-goods traffic, a ban on the road transport of animals for slaughter or the non-export of certain social security benefits.

Monitoring and dispute settlementThe draft agreement makes no reference to any new supranational institution. Each party will monitor the application of the agreements on its own territory. The draft agreement also establishes a mechanism for referring disputes to an arbitration panel. Where the arbitration panel is faced with a dispute concerning the interpretation of EU law, it will request a ruling from the Court of Justice of the European Union. The arbitration panel would then resolve the matter based on the Court's interpretation. If either party fails to comply with the panel's decision, the other party is permitted to take compensatory measures. At the request of the party affected by the compensatory measures, the arbitration panel may determine whether such measures are proportionate and, where appropriate, direct that any disproportionate measures be discontinued.

State subsidiesIn addition to the institutional mechanisms referred to above, the institutional agreement includes further provisions aimed at maintaining a level playing field for all operators in the EU internal market. For example, the draft agreement sets out a framework for state subsidies, which is not directly applicable and essentially non-justiciable, but may be adopted and reinforced, as necessary, by inserting directly applicable, binding provisions into future market access agreements, such as the electricity agreement. Each party will independently monitor state subsidies on its own territory under equivalent monitoring regimes. The institutional agreement lays down specific procedures in furtherance of these objectives, such as a procedure for reporting state subsidies. In Switzerland, state subsidies will be monitored in line with constitutional principles.

Accompanying measuresWith regard to the free movement of persons, the EU recognises the unique nature of the Swiss labour market and the need for specific measures to safeguard Swiss wage levels. The agreement, in its current form, therefore defines three key accompanying measures, which extend beyond the scope of existing provisions of EU law: four working days' prior notice in sectors at risk, the obligation to provide a financial guarantee, which must be proportionate, in respect of service providers that fail to meet their financial obligations and obtaining documentation from independent service providers in line with the risks involved. However, these measures are not consistent with the outcomes sought by the Federal Council.

Directive on the right of citizens of the Union and Regulation 883/2004The negotiated agreement does not refer to Directive 2004/38 on the right of citizens of the Union and their family members to move and reside freely within the territory of the member states. This means that any disagreement with the EU as to Switzerland's adoption of the directive will be governed by the relevant dispute settlement provisions. While the Federal Council might have preferred a specific exemption, the EU wanted the agreement to include an undertaking by Switzerland to adopt the directive.

Regarding the revision of Regulation 883/2004 on the coordination of social security systems, the Federal Council notes that the amendments are still awaiting approval by the EU and should not therefore be included in the agreement.

Termination clauseFinally, in the event that the institutional agreement is terminated, the existing agreements will continue to have direct application. Both parties would have three months to agree a solution regarding the continued application of these agreements. If the parties failed to reach an agreement within three months of the consultation procedure being initiated, the relevant agreements would also cease to apply within six months of that date.

ConsultationsThe EU has submitted a proposal concerning the accompanying measures which is not in line with the Federal Council's negotiating mandate. The two sides were also unable to reach an agreement on the Citizens' Rights Directive. The Federal Council will now launch consultations on the draft agreement. The goal of these consultations will be to reach a consolidated position in order to seek further dialogue with the EU if necessary. To this end, the draft agreement will be translated into Switzerland’s official languages and published. The FDFA, together with the President of the Swiss Confederation and the Federal Department of Economic Affairs, Education and Research, will inform the Federal Council of the status of these consultations in spring 2019.

Stock exchange equivalence (MiFIR 23)The Federal Council today reiterates its view that Switzerland fulfils all the conditions for the EU to recognise the equivalence of Switzerland’s stock exchange regulation in accordance with MiFIR 23. It therefore expects the EU to make a prompt determination to this effect.